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28 June 2012

An Essay on Health Care

Like the rest of my country, I am waiting on the ruling by the Supreme Court on the constitutionality of the Affordable Care Act, or "Obamacare." You can read a summary of the issues and case here at SCOTUSblog. Even the experts at SCOTUSblog - and they are the most expert group among those who watch these sorts of things - can only offer fairly weak predictions of the outcome: Tom Goldstein declares that his "level of confidence isn't overwhelming" but that he thinks "the mandate will not be invalidated." But in another way, my suspense is limited: whatever happens in ten hours, it cannot be the end of the story.

As Jeff Madrick has recently noted in the NYRB, the number of uninsured in America has been rising since the 1970s. The number of uninsured, whose ranks are dominated by the poor, totals nearly 50 million, or 16% of the population. Obamacare was brought into being almost purely in order to compensate for a system that is inherently flawed by its very nature, because it is a bizarre mix of two different styles of health care that each work to accelerate the flaws of the other.

Whether or not Obamacare is upheld, we need to face the fact that it is not the best solution. Whether or not it is upheld, the resulting situation will only be a mid-point towards an eventual evolution.

I

There was a time when you got sick, and either lived or died. There was relatively little treatment available beyond initial intercession and a modicum of palliative care, unless you were wealthy. Most other options were crowded hospitals, funded by charity.

With the rise of modern medicine, the possibility of cures and convalescence became increasingly more likely. At the same time, the development of new ideals of equality, intrinsic human worth, and institutionalized compassion made people aware of the uncomfortable fact that poor people also deserved care. Like all cutting-edge science, the most advanced medical techniques remained expensive, which seemed to leave only one possibility: people could build equity up in advance, contracting with an insurance company for their lives the same way they contracted for their possessions. It seems normal now, but it's actually rather absurd: I will give you money every month, in exchange for nothing. But if I get sick, you have to pay for it. There are some immediate oddities with this approach, including the fact that it encourages you to be a hypochondriac: the only way to get any value for your money is to be sure you check out every little possibility.

This strange arrangement has naturally and intricately evolved. Insurers charge more if you seem likely to get sick, because you represent a bad gamble for them, and they specify different types and degrees of sickness that they will cover, in an increasingly more complicated set of contracts. Subscribers demand and receive a minimum level of services, such as regular check-ups - and because such services are paid for by big insurers that can negotiate deals, they have been priced far out of proportion with their true cost for everyone else. The biggest problem with the arrangement, of course, is that it still represents a certain level of investment. If you can't afford insurance, you definitely can't afford treatment.

Enter the unions. Unions seem to have been responsible for enforcing a norm in America that required employers to provide medical insurance to their employees as a benefit. On the positive side, this meant that all those who were employed at a decent job would have health insurance, allowing millions to receive care they'd otherwise not receive. On the negative side, this norm meant that options for those who weren't in a decent union job were more limited. Even without a union, their employer might abide by the norm. But there was little certainty, and employers had become intrinsically wrapped up with the insurance process - a situation that makes even less sense. I will work for you. Part of my compensation will be that if I get sick, you have to pay for it. Even more perverse incentives are obvious (you seem likely to get pregnant - no thanks), all of which have plagued the American worker and which have required legislative solutions. These solutions were backed by unions.

At the same time, another possibility began to present itself to those unhappy with the serious problems with the private insurance situation: public healthcare. This makes sense in a different kind of way: health care is seen as something that everyone should receive, because it is a "right" (to use the imprecise phrasing of advocates). There are another set of negatives, of course. Just as with private healthcare, you are likely to try to take full advantage of the system and get the most possible care. But more prominently, the fact that a public agency will be in charge of providing care means that there are the inevitable problems of any bureaucracy: inefficiencies on the one hand, and "rationing" on the other (to use the imprecise phrasing of a different sort of advocates). Any government distribution of a finite amount of resources - in this case, the allocated dollars paid out to health care providers - will have those problems. Regardless of the drawbacks, it must be recognized that the military, at least, had actually always operated on this system, and it would work well in some contexts.

For a period of about thirty years, the American system was a complicated melange. The unions had established a widespread system of employer-based private health care, while specific systems of public care had been established for a few special groups: the very poor, the elderly, and the military. American healthcare was a patchwork quilt shared by all citizens, and while political groups fought to tug it a little more snugly over their favored constituencies, by and large everyone kept warm.

Unfortunately, and perhaps inevitably, this bizarre system no longer works. This appears to be the simple truth of the matter, and it does not appear possible to simply stitch on another threadbare bit of cloth. At its root, the essential flaw in the system lies in the fact that we are using private and public care in a way that emphasizes the worst qualities of both.

When it comes to private care, the unions that fought and maintained the norms have dwindled, and are much less of a force than they once were. The recession also encouraged employers to slash benefits. As a result, the essential inequality of the system has come to the fore: fewer and fewer people can get insurance from their employers. Nor can they afford private insurance from a system that was built to accommodate employer-based insurance. This isn't much of a problem for the wealthy, who need not worry about either circumstance (the rich are well-equipped to get jobs with good benefits, and to pay for their care if they cannot).

In the public sphere, a different sort of inequality has evolved: you are either one of the covered, or you are not - yet you pay for their care, regardless. Naturally, they have become coherent forces to exacerbate this inequality in their own favor: don't cut my benefits! This is particularly true in the case of the elderly, whose ranks continue to swell and who already represent perhaps the second most powerful political interest group in America, exceeded in potency only by the wealthy. Everyone else in the country is indirectly subsidizing these groups, sending them money for their care, while paying for their own. It is possible to do this in the short term, of course, but eventually the burden on those in the private system, who pay for everyone, becomes too great.

So the present situation is an impossible one. One group has been hardest hit: those in the middle, in what is called the "donut hole." This group is too wealthy to get public care, too poor to get private care. But because they are the ones who bear much of the burden for sustaining both systems, they justly resent such an odious state of affairs. And things continue to get worse for them.

II

The Affordable Care Act was an attempt to balance these flaws against each other and mitigate them by creating a system of public health care administered by private health care. If everyone is required to get private health care, then they're all working within the same system, so inequality will decline (hopefully). But because they still have individual choice between private insurers, the mechanism of competition inherent in capitalist enterprise will keep costs and inefficiencies somewhat restrained (hopefully).

Now, the way the ACA forced everyone to get private health care was by imposing a fine if they failed to do so. Political opponents - and some Supreme Court justices - were outraged by this. I'm not going to go into the legal arguments, which seem sadly beside the point when put beside the larger picture. There were all sorts of major entrenched interests fighting it out over this debate, and they all had different ideas. Alongside the larger competition of Democrats and Republicans, there were the large blocs already enrolled in public health care, the wealthy interested in preserving privileged access to the system, and several enormous industries that all relied on the status quo.

So the simple fact is this: Obamacare was an extremely complicated way of trying to ameliorate an extremely complicated set of problems that are inherent to our extremely complicated system, and it had to be designed and implemented in a way that catered to an extremely complicated set of all the most powerful interest groups in the country. It is not surprising that the result didn't make everyone happy, or that it probably isn't the ideal set of solutions. The surprising thing is that anything happened at all. It is a testament both to the dire nature of the situation and the leadership of President Obama that Obamacare was developed and passed at all, and he deserves every credit for it.

But, as has been demonstrated, the Affordable Care Act's survival is uncertain. It might be struck down in part, with the mandate eliminated, in which case another mechanism will have to be found to make it work (although it seems unlikely that Obama, should he be re-elected, could produce a second miracle and ensure the passage of this other mechanism). Obamacare might be struck down in whole, in which case some timid secondary measures will be put in place, and things will continue to get worse. Or Obamacare might survive, and become an astonishingly difficult challenge to maintain and implement as it navigates its way through the labyrinth of our blended system.

As you can probably tell at this point, I'm not a lawyer and I'm not an expert on health care. But it seems to me that none of these solutions are very good, even if the most preferable by far would be if SCOTUS upholds the ACA. Instead, the best system will probably remain universal public health care. Everyone is in the system, everyone pays, everyone receives care. Just like in every country and in the limited extant public systems, predictable flaws will exist: efficiency and "rationing." Infinite care will not be available for that select group of the upper-middle class and wealthy that currently enjoy it, and the overall deployment of health care dollars will see a marginal increase in waste. But many, many more people will get much better care than they'd otherwise receive. The trade-off is worth it.

I am in huge suspense, waiting for the ruling on health care. But if the ACA is destroyed, it's only a matter of time before the system finishes pulling itself apart, and people accept that it is unsustainable. And if the ACA is upheld, it will only remain a stopgap solution, a stepping stone on the way to true universal public health care. I believe that if it survives, its greatest role will be in reducing the balkanization of interest groups that encourages them to obstruct that future, uniting Americans towards a smaller set of incentives that will propel the nation towards that goal.

You allude to the influence of unions in encouraging employer-based health insurance. Employers do not do this because of some cultural pressure or norm, but because health benefits are taxed differently than raw salaries, so employers are able to offer a better package of salary-plus-benefits to their employees. It's not a coincidence or a cultural artifact that nearly every medium- or large-sized company offers health insurance as part of some compensation package, instead of an equivalently-larger salary.

This IMO is a huge reason people become uninsured. Who, in all of the debate over the PPACA, hasn't heard a story of someone who lost their job, lost the insurance tied to that job, and then fell victim to some sort of catastrophic illness? It makes so much more sense for people to just get paid more, and then separately maintain their own policies, as they do for car insurance. (I hate that comparison, but you get what I mean.) Then the average person would be more likely to be able to maintain the same policy, and not get caught short when some horrible accident occurs.

You may object that people need employer-based coverage because private insurance policies are too expensive -- but from the perspective of the employer, what is the difference to payroll, absent some differential treatment in the tax code? The only thing I can think of is that an employer achieves a greater economy of scale by enrolling all their employees in one rigid selection of plans, which is marginally more efficient overall. But absent an employer-based system, people would have more flexibility to choose an insurance plan suited to them, and might not have to pay for types of coverage they don't need.

In fact, this is such a common-sense reform that I think there has to be some obvious downside, beyond the short-term destabilization that occurs with any broad sweeping change to the tax code. What is it?

I think that it's true there are now structural reasons why there is employer-based insurance, but these came into being because of those norms, and because of labor's pressure to encourage the change. At least, that's how it appears to me. It is certainly true, though, that it'd make more sense to go either more private (as you suggest), or more public (as I'd prefer). It certainly is a common-sense reform, and it would probably be better for most people than the current system.

The reasons why it hasn't occurred, of course, is that it would have to happen by some sort of pressure. It'd be impossible to legislate that all employees get a raise amounting to the cost of their health insurance, because coming up with the actual cost of their insurance would be very difficult, and then they would indeed find that their personal buying power was very different than a big institutions. So politicians would just have to try to make it illegal to provide insurance for your employees (attack ad waiting to happen), and then countless legions of people would have to hope they don't end up getting massively screwed by corporations who would have a direct interest in immediately and secretly screwing their employees. Any lesser degree that just tries to nudge things that way is only slightly less terrible ("Senator Calhoun wants to reduce the subsidy for YOUR health insurance. Why does Senator Calhoun hate your children?")

You wouldn't have to try to get Congress to do anything as ridiculous as dictating, by fiat, a salary increase for the entire private sector. You also wouldn't need Congress to outlaw companies' providing healthcare benefits as part of compensation. Good god, do you really live in a world where every economic relationship must be either mandated or prohibited?

Ideally, Congress would just amend the income tax code to use equivalent formulas for salaries and benefits. Then individual companies would adjust their compensation packages as they see fit. Some would undoubtedly maintain the status quo, but others would adjust to offer different combinations of salary + benefits. There would be no compelling reason to offer a lavish insurance benefits package versus a larger salary -- particularly for young, relatively healthy people who would only want a catastrophic-coverage policy in any case.

It is extremely distressing that you think "it would have to happen by some sort of pressure." Removing the government's thumb from one side of the scale is not applying pressure; it is precisely the opposite.

That amendment would be included in what I referred to above as "any lesser degree" of interference - no, I am not the personified image of Big Government Liberal :P I was just describing the most extreme scenario. My point is as it was above: meddling with the system leads to incredibly easy and effective attack ads from opponents. Plus, there's not really much benefit to politicians to balance that. Obamacare was enacted because health care sucks, leading to pressure from the electorate to visibly fix it, but also because the insurance industry supported the change (because it's a big hand-out to them in a lot of ways).

If your ideal was enacted, and benefits and salaries were taxed at the same rate, then the politicians who did it would immediately be portrayed as "killing the health insurance tax break" or something like that. The alternative message, "giving employees choice" or something just won't fly. Also, I don't actually think the results would be very good. It would provide corporations with the opportunity to simply lower benefits by the same amount that they've lost in tax breaks, but there's no pressure for them to pay an equivalent in salary. There's not much gain for a company to be found in paying their employees less when everyone else's employees have taken the same pay cut (c.f. current record corporate profits). Most likely, the average wage will just drop by some fraction of the average of the lost insurance subsidies. True, after that point, the system will be a little more fair and wages will resume their natural slow climb, but in the meantime a lot of people will have been hurt and income disparity will climb even faster than it has been.

Ahahaha, sorry, I am just tweaking your buttons. :) I agree with you that attempting any sort of health care reform, in any direction, is nearly politically impossible, since our current hybrid public/private system has vested interests on all sides.

That's why, to sell the elimination of this tax break, you would need to make some other change in the tax code, like lowering the overall rate, so that the policy would be revenue-neutral. (I think this is the only way to eliminate ANY targeted tax break, otherwise you are seen, legitimately, as raising taxes on the healthcare of middle-class Americans.)

You say there is no benefit to politicians: well this is true, because it eliminates a specific current benefit. But I think we have both seen that Republicans will use any and all available arguments as a club to beat the Dems with, purely out of partisan spite. They should argue for this, and for other straightforward reforms (like being able to sell insurance across state lines), instead of their current strategy, which is to have no real alternative solution beyond the slogan "Repeal and Replace".

And if they want a way to sell it, they can say what I just said above about divorcing health insurance coverage from employment, so that when you lose your job you don't also have to worry about getting a catastrophically-expensive illness. In fact, that exact scenario has already been used to sell the policy of guaranteed issue in the PPACA.

I urge you to read this point/counterpoint in the Times from a couple years ago:

It was written prior to passage of the PPACA, but I think the reasoning is still valid. Interestingly, both writers agree that the current policy is inequitable and disproportionately favors rich people, who receive larger breaks on larger benefits plans. They also agree that any change would have to be coupled with goodies, though, to ward off... exactly the type of objections Biden made when this policy change was proposed by John McCain (I know: I was surprised).